Fundamentals – Insurance Covenant
• Insurance strategy (formulate, review & give effect to)
addressing:
– Kind of insurance
– Levels of cover
– Basis for decision to offer the kind at that level having regard to
demographic composition
Fundamentals – Insurance Covenant
• Cost
– Consider; and
– Only offer insurance of a kind and level if the cost ‘does not
inappropriately erode the retirement income of beneficiaries.
“This recognises the importance of trustees balancing the needs of
members with respect to insurance cover offered and retirement
incomes” (EM)
Fundamental – Insurance Covenant
(. . .Cost)
“. . . the duty requires the trustee to consider the trade-off
between the insurance cover provided and the retirement
incomes of members. Therefore, it does not apply to the
circumstances of individual members. ” (EM)
Insurance Strategy – options
• MySuper insurance requirement:
– Death & Permanent Incapacity (s68AA(1))
• Subject to conditions the trustee determines are reasonable (3)
• Consistent with a condition of release
– Members may opt-out of either or both (5)
• Subject to cost or unavailability
• Sustainability of current benefit design?
Insurance Strategy
Adviser experience
• Claims payments for policy types not payable within super –
IP ancillary benefits and trauma:
– 49% of number of our claims; and
– 67% of the total value of our claims.
Insurance Strategy – Benefit
• What can you do for a member with an income of $180,000
and a need for $900K of life cover?
This?
Insurance
type
Life
TPD
Life/TPD
$900K
$900K
Trauma
Income
Protection
Totals
Inc Protect
In
Super?
Premium
Type
Yes
Level /
Age
based
$11,250/mth No
$900K
$900K
$0
$11,250/mth
Stepped
How about this?
Insurance type
Life
Life/TPD
$900K
In
Super?
Premium
Type
Yes
Level
No
Level
$200K
No
Yes
No
Level
Stepped
Stepped
$550K
No
No
Stepped
Stepped
Trauma
Inc Protect
$900K
TPD (Own Occ) Linked
Trauma
TPD
TPD (Own Occ) Linked
Trauma
Income
Protection
Totals
TPD
$750K
$11,250/mth
$900K
$1.65M
$750K
$11,250/mth
Insurance advice
•
•
•
•
Disclosure
Calculators
General advice
Personal advice
– On what?
Too compliance focussed?
• Let regulation drive innovation:
– What is the basis for your decision on what kind and level of benefits
you provide?
– Why does your cover not inappropriately erode retirement savings?
– How are you assisting your members individually?